INDUSTRY BACKGROUND

LOCAL INDUSTRY BACKGROUND: The cement industry has flourished remarkably since
the time of its formation. When Pakistan came into existence, it only had four cement
manufacturing units with the 0.5 million tones of the total production capacity. Then in 1956-66,
economic development in the country occurred which resulted in the growth of this sector thus
allowing more set up of cement plants. However, expansion in the cement industry was short-
lived as the production capacity of the industry failed to keep up with the heightened demand of
cement. As a consequence, Pakistan turned to imports in order to meet the unmet demand for
cement in 1976 and continued doing so till 1995. In 1990, change in the government policy led
to the privatization of the industry. As a result, growth in the industry picked up and surplus
production was achieved after meeting local demand in 1997.
Even today, cement industry plays a crucial role in the economic development of Pakistan. This
sector is ranked fifth largest exporter of the world and is currently contributing above Rs 30
billion as taxes to the country. Moreover, it is also providing direct and indirect employment to
more than 150,000 persons in the country.
Currently, the industry consists of 29 firms which can be divided as 19 units in the north and 10
units in the south with a total installed capacity of 44.64 million metric tons. As a whole,
industry capacity utilization stands at around 72% to 75% in both north and southern regions.
The northern region produces 80% of the cement sales while the southern region provides 20%
of cement in the country.
At the moment, cement sector is making use of just 50% per cent of its production capacity as
the local consumption of cement has been sluggish for the last few years. The low domestic
demand has left the industry with maximum idle capacity. This is pushing manufacturers to sell
cement at loss in the domestic market. So there is a need to explore new or foreign markets to
make use of their idle capacity. Countries in Asia and Middle East, especially countries like Iraq
and Afghanistan provides good export opportunities for the industry. Many cement companies
have already entered the export markets to utilize their surplus production and have effectively
created credibility for their cement in those markets.
Although the cement comprises a relatively large number of manufacturing units (29) but the
competitive nature of the cement industry is in actuality oligopolistic in terms of market
structure. This is due to the fact that industry is dominated by a few major players. This factor is
by far the most important one in determining the cement sectors market structure. Out of the
29 companies in the cement sector, four of them hold majority market share and are therefore
able to drive industry prices. The chart below shows major industry players and their market
share: